Quick Facts

Despite the difficult global economic environment, Rwanda’s economy has expanded at an average annual rate of more than 6 percent during the past five years. Foreign direct investment also has risen, albeit from a low base. Notable regulatory reforms have enhanced the business environment’s efficiency.

Economic Freedom Snapshot

2016 Economic Freedom Score: 63.1 (down 1.7 points)

Economic Freedom Status: Moderately Free

Global Ranking: 71st

Regional Ranking: 4th in Sub-Saharan Africa

Notable Successes: Trade Freedom and Regulatory Efficiency

Concerns: Corruption, Property Rights, and Financial Freedom

Overall Score Change Since 2012: –1.8

Rwanda still faces significant challenges. The institutional foundations of the rule of law are fragile. While the overall security situation has become more stable, the absence of a well-functioning legal system and the lack of transparency keep the judiciary susceptible to political interference, holding back anti-corruption efforts.

Background

Paul Kagame’s Tutsi-led Rwandan Patriotic Front (RPF) seized power in July 1994 in the wake of the state-sponsored genocide that killed an estimated 800,000 people, mostly Tutsis. Kagame has been president since 2000. He was reelected in August 2010 amid allegations of fraud, intimidation, and violence. His RPF won a resounding victory in the September 2013 parliamentary elections, and in 2015, the parliament began to debate whether the constitution should be amended to allow Kagame to stand for a third term. There have been some structural reforms, and Rwanda is trying to become a more service-oriented economy. Despite strong growth based on tourism and exports of coffee and tea, poverty remains considerable, and over 80 percent of Rwandans depend on subsistence agriculture supplemented by cash crops.

Measures to foster a better business environment and improve government transparency and accountability have had a limited impact on corruption, and graft remains a problem. Recent improvements in the judicial system include better training and revisions of the legal code, but the judiciary has yet to secure full independence from the executive. A nationwide land registration program is being implemented.

The top personal income and corporate tax rates are 30 percent. Other taxes include a value-added tax and a property transfer tax. The overall tax burden equals 13.9 percent of total domestic income. Government spending amounts to 27.6 percent of GDP, and the budget balance has been in deficit. Public debt is equivalent to less than 30 percent of total domestic output.

The pace of regulatory reform has slowed. Licensing requirements still cost almost three times the level of average annual income. An increase in the minimum wage has exceeded labor productivity growth, undercutting hiring flexibility. Rwanda has a public sector–led, aid-dependent economy. The government subsidizes agriculture, maintains price controls, and subsidizes power for the 20 percent of the population with access to electricity.

Rwanda’s average tariff rate is 8.7 percent. Land is owned by the government, but foreign investors may lease land. Domestic companies may receive a preference in bidding for government contracts. The investment regime is still evolving and is not conducive to dynamic expansion of investment in new production. The cost of financing remains relatively high, and access to banking services continues to be limited.